HUD Homes
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Affordable Housing Solutions
HUD homes are foreclosed properties that were purchased using a FHA loan. A residential property becomes a HUD home when its owner defaults on their loan by failing to pay the mortgage. HUD, the Department of Housing and Urban Development buys the home and sells it to the highest bidder in order to recover their costs.
The government seeks to regain their investment quickly, so typically these properties are sold quickly. HUD homes are appraised then priced accordingly. However, to encourage more buyers, they are sometimes listed for below fair market value. It’s important to note that these homes are sold as it, meaning no repairs are made prior to the sale.
How to buy a HUD Home
Purchasing a HUD home is different than buying a traditional home. HUD properties are not listed on the MLS, instead listings are managed by the state they’re located in. You can also do a national search by zip code, city or state.
HUD homes are sold via auction. Buyers must work with a real estate agent who is registered with HUD in order to submit a bid. To increase your chances of making the winning bid, choose a real estate agent experienced in foreclosures.
Initially, when the home goes on the market, HUD gives owner occupants the exclusive ability to submit a bid. Typically this bidding window varies, but is a minimum of 5 days. Then the bid is opened up to all buyers and investors represented by a HUD approved agent. HUD does not give priority to any type of bidder, but simply accepts the highest offer.
HUD home sales differ from traditional homes in that a cash offer or ability to close quickly doesn’t give a bidder priority over other offers. However, if none of the submitted bids are viewed as high enough, then the auction is extended. It’s not uncommon in this type of sale to see amounts like $100,001 rather than $100,000 to ensure you’re the highest bidder, even if only by $1.
Pros
- Less Competition: If you are an owner occupant buyer, you have first access to bidding on the property and could face less competition from investors
- Special Assistance is Available: Multiple assistance programs exist to make buying a HUD home more affordable for low incomes families or first time homebuyers
- Closing Costs: HUD pays up to 3% of the purchase price in closing costs. This includes a mortgage origination fee of up to 1%.
- No Haggling with the Seller: Simply submit your best offer as a bid in the HUB home auction, then wait to hear if your bid was accepted.
Cons
- Sold As-Is: There is no negotiating repairs or improvements to the home. You agree to purchase a HUD home regardless of the repairs an inspection may identify.
- Vacant Home: HUD Homes often sit empty during the bidding process. Vacant homes can deteriorate faster, or be at risk of break ins.
- Strict Requirements: If you purchase a HUD home as an owner occupant, you have to commit to living in the home for at least one year. You cannot convert the property into a secondary residence or vacation home. And you’re not permitted to purchase an additional primary residence during this time.
*HUD Homes are not a traditional sale and require proper due diligence and review of both property and purchase documents.
Steps toBuying a home
Step: 1GET PRE-APPROVED
Step: 2CHOOSE AN AGENT
Step: 3HUNT FOR HOMES
Step: 4RESEARCH NEIGHBOURHOODS
Your new neighborhood is just as important as your
home. Look at schools, recreation, and shopping.
Step: 5MAKE AN OFFER
Step: 6INSPECTION
Step: 7CLOSE THE SALE
Step: 8Move In!
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